Insights into the system of German

Bausparen

Wüstenrot & Württembergische AG

History of Bausparen

Investor Relations Seite 2

200

BC

1775

1831

1885

1921

Han dynasty in China: first mutual savings societies are formed.

As a result of housing shortage, the first building societies emerge in Great Britain.

Germany: „Bausparkasse for everyone“, formed by Pastor Friedrich von

Bodelschwingh.

Formation of the first building society in the U.S.

George Kropp founded Wüstenrot, the oldest Bausparkasse still in existence, as

„Society of Friends“. In 1924 the first member is allocated a loan for building

purposes.

The basic idea of Bausparen I

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1 person saves € 10,000 per year for 10 years

10 potential home buyers each save € 10,000

per year for 10 years and pool their savings.

Disbursement of € 100,000 to the first saver,

meaning that the first home can be purchased

after one year.

Granting of further loans in the subsequent

nine years, until all 10 savers have purchased

their homes.

By pooling all savings, the time needed to

purchase a home is shortened considerably!

Each individual benefits from his membership

in the pool.

€ 100,000

waiting period of

10 years

Ø-waiting

period of just

5.5 years

Year 1

€ 100,000

10 savers

Year 2

€ 100,000

9 savers, 1 person

repaying the loan

Year 10

€ 100,000

10 persons repaying

the loan

The basic idea of Bausparen II

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The monies saved and repaid by

Bauspar customers are disbursed

by the Bausparkasse as loans.

Being part of a community of Bauspar customers enables savers to purchase a home more

quickly than if they saved individually.

The borrower repays 1/10 of

the received Bauspar sum

each year to the pool in

order to pay off the loan. In

addition he pays the agreed

interest rates.

Bauspar balances are invested with the utmost security: Bauspar banks are not allowed to

invest in equities or structured products.

Borrowers

Principal + interest

Bauspar loans

Savings

Interest paid

The principles of Bausparen

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Bauspar balance

Front-end fees Bauspar loan

Savings phase Allocation Loan phase

Ba

usp

ar

su

m

e.g. 0.25%

e.g. 1.95%

The difference between the

interest rates – in this case 1.7%

– corresponds to the "margin" for

the Bauspar bank, which it uses

to cover its costs

The Bauspar customer

saves for several years

at a low interest rate.

By receiving a lower payment of interest during the

savings phase, the Bauspar customer is entitled to

a loan with a lower interest rate, which the

Bauspar bank disburses at the time of allocation

together with the amount saved.

Unique selling Proposition of a German Bausparkasse

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Bauspar customers receive a low interest rate on their savings balances.

This enables the Bauspar bank on the other hand to offer Bauspar loans at low interest rates.

By contrast, given the same margin, a "normal" bank is not in a position to offer loans with such low interest rates, as they have

to pay their savings customers a higher rate of interest.

e.g. 1.95% interest

rate on the loan

e.g. 0.25% interest

rate on the savings balance

"margin" of 1.7%

Bausparen offers protection against increasing interest rates

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Bank loan

Fixed interest rate for 10-15 years

Advance loan of the Bausparkasse

Interest rate fixed for the entire term

At the end of the term Risk of changes in interest rates No interest-rate risk

Scenario 1:

Interest rate risesPayments increase No change

Scenario 2:

Interest rate fallsPayments decrease

No change, but option to repay part of the loan at any

time

Bausparen offers risk-averse customers fixed interest-rates as well as fixed instalments over the entire term.

Home financing without Bauspar contract

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• With bank loans, the outstanding balance is subject to the risk of changing

interest rates.

• Considerably higher payments can jeopardise the debtor's financial capacity.

• With Bausparen, the interest rate is fixed for the entire term of the loan, with the

option to make unscheduled repayments in any amount.

Loan of € 100,000

• Interest rate of 2% over a term of 15 years

• Initial annual amortisation amount of € 1,000

• Annual instalment: € 3,000

End of term after 15 years

• Outstanding balance approx. € 82,700 - only a small amount amortised!

• Interest changes to 3% after the end of the term

• Annual instalment now € 3,480 with unchanged amortisation amount

The Bauspar customer concludes a contract for the desired Bauspar sum, thereby undertaking to save between 0.3% and 1.0%

of the agreed sum each month.

Once 40% or 50% of the sum has been saved and the savings balance has existed for a sufficient period of time, the customer

has acquired a right to a special Bauspar loan. The loan is normally disbursed in the amount of the difference between the

Bauspar sum and the Bauspar balance. The Bauspar customer can thus draw down the entire Bauspar sum for home financing.

For the order of allocation, a valuation index is calculated for each Bauspar customer from the savings sum and the savings

duration. Bauspar customers with the highest valuation index have the first claim to allocation of the Bauspar sum (time-by-

money system).

Allocation normally occurs once the minimum savings sum has been reached or shortly thereafter. The precise time depends on

the amount of the financing resources of the Bausparkasse. Financing resources consist of savings contributions, amortisation

payments on granted loans, interest on balances, and housing subsidies.

Allocation to the individual Bauspar customer

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Ideal financing mix

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Loan under

Bauspar contract

20-30%

Equity

20-30%

Mortgage loan

50-60%

The lending limit for Bauspar financing is

80% of the Bauspar sum.

Banks normally lend up to 90% of the

property's mortgage lending value.

For borrowers with high creditworthiness,

the entire purchase price can even be

financed. However, only those loans

below 60% of the mortgage lending value

get the best terms. The interest rate rises

as the percentage increases.

For this reason, 20-30% of the financing

amount should be covered by equity.

This also includes the balance under a

Bauspar contract.

Bausparen is an important part of the financing mix.

The customer has found his dream home –but he doesn't yet have enough savings in his Bauspar contract.

In this case, Bauspar banks offer future home owners so-called “advance loans":

The potential home buyer takes out a loan from a bank and at the same time concludes a Bauspar contract. He uses the loan to

immediately finance his building project. With the monthly instalments that now begin, he pays the interest on the loan and at the

same time the savings instalments for the Bauspar contract. Capital accumulation benefits and employee savings bonuses can

also be used to contribute to this special form of Bauspar contract.

Initially, the loan is not amortised. This begins when the Bauspar contract is ready for allocation.

The saved capital is transferred to the bank to repay the initial loan. The builder continues to make his monthly instalment

payments, but now for amortising the loan portion of the Bauspar contract.

Advance loans with a Bauspar contract

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Advance loans under Bauspar contracts allow for immediate financing.

Focused accumulation of equity.

Guaranteed fixed low interest rate for the loan: Secure calculation basis over the entire term of the contract; no risk of changes

in interest rates, in contrast to normal bank loans. Here, risk of a change in the interest rate normally after 10 years.

Government supports Bausparen with the housing subsidy and the employee savings bonus. Since November 2008, also

Riester-subsidised home savings products are possible.

Bausparen offers a high degree of flexibility: No-cost repayments are possible at any time, up to premature repayment in full

without any penalty.

The loan is secured in the land register with a subordinated position.

Bausparen is highly attractive even in low-interest environment

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Home building and private home ownership are high-ranking objectives of economic and social policy. For this reason, the

government supports the commitment of Bauspar customers and provides a variety of subsidies to help them.

Government Bauspar subsidy

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Housing subsidy Employee savings bonus

Subsidy rate 8.8% 9%

Savings cap (single) € 512 € 470

Savings cap (married

couple)

€ 1,024€ 940

Subsidy (single) € 45.06 € 42.30

Subsidy (married couple) € 90.11 € 84.60

Income cap (single) € 25,600 € 17,900

Income cap (married

couple)€ 51,200 € 35,800

Statutory bases of Bausparen

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BaFin(Federal Financial Supervisory Authority)

Banking Act(Kreditwesengesetz, KWG)

Home Loan Bank Act

(Bausparkassengesetz, BspkG)

Home Loan Bank Regulation(Bausparkassen-Verordnung, BspkV; BGB)

Importance of Bausparen since 1945

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Bausparen is important for creating home ownership and for private

retirement schemes. Since the end of World War II, German Bauspar

banks have provided more than € 1.3 billion for home financing.

This means that more than 13 million homes, including 9 million new

homes, were co-financed using home loan savings funds.

One out of every two German households has at least one Bauspar

contract - a total of 26 million people. Each year, 650,000 young

people under the age of 25 concluded a Bauspar contract.

This does not include all loans, that are used for renovations and

modernizations or for purchasing building plots.